Commercial & Industrial Property News Update

Malaysia - Demand For REITs High In Short Term

With the current global economic uncertainties, defensive stocks such as real estate investment trusts (REITs) will remain in high demand among investors.

Due to their defensive nature, REITs will remain in high demand in the short-term as investors seek to avoid the negative implications of the current economic uncertainties.

As such, the impending listing of IGB REIT by IGB Corp Bhd in mid-September is expected to be greeted with a favourable response.

"REITs are in favour now as they are considered a safe haven investment. In the next three months, because of all the uncertainties in Europe, the United States and China, people will still go into it," said the head of research of a local bank-backed research house.

The unnamed source added that the demand for REITs would reverse once the market recovers, with more investors venturing once again into riskier assets.

"When conditions improve, affordability improves as well. So instead of investing in defensive stocks like REITs, people would invest in the property's stock itself," he said.

His comments come just as IGB REIT is gearing up for an initial public offering (IPO) from which it expects to raise RM 837.5 million on Bursa Malaysia's Main Market.

IGB REIT, which will be formed based on two of Kuala Lumpur's most iconic retail developments - Megamall and The Gardens - will be Malaysia's fifth mall REIT to be listed. Tentatively set for a September 19 listing date, the trust would join Pavilion REIT, Capitamalls Malaysia Trust (CMMT REIT), Sunway REIT and Hektar REIT.

Based on a retail price of RM 1.25 per unit, IGB REIT is set for a total market capitalisation of RM 4.25 billion, the highest among the five retail REITs.

The unnamed source said that REITs offer attractive dividends, and cited that as the prime reason to invest. "Capital appreciation is secondary as it can be quite limited because people are probably willing to buy the REIT at a certain level," he said.

With higher prices resulting in lower dividend yields, there would be no incentive to push prices up, he added.